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Analysis

OSF Healthcare Prevails in 'Church Plan' ERISA Exemption Dispute

By Steven Porter  
   September 28, 2018

A judge rejected the former employees' claims that the 'church plans' ERISA exemption violates the Establishment Clause.

OSF Healthcare System, a Catholic-affiliated nonprofit based in Illinois, secured a legal victory Friday in federal court, where several former employees had accused the system of relying inappropriately on the so-called "church plans" exemption to the Employee Retirement Income Security Act (ERISA).

The plaintiffs, who sought class action certification on behalf of 16,000 employees, had accused the system of violating ERISA's requirements by underfunding two health plans in which the former employees are vested. They had also argued that the existence of government-recognized church plan exemptions violate the First Amendment's Establishment Clause.

But their claims were roundly rejected by U.S. District Judge Staci M. Yandle, who ruled Friday both that the exemption is congruent with the Constitution and that it does, in fact, apply to OSF's plans. Yandle granted summary judgment to the system and dismissed the case with prejudice.

The complaint against OSF came among a slew of similar cases filed in 2016, as multiple appellate courts ruled that religiously affiliated hospital systems were ineligible for a church plan ERISA exemption. Other prominent systems, such as Mercy Health, SSM Health Care, Bon Secours Health System, and others, faced lawsuits of their own, as Bloomberg reported at the time.

Last year, however, the Supreme Court ruled 8-0 that Advocate Health Care, Saint Peter's Healthcare System, and Dignity Health enjoyed ERISA exemptions, affirming the longstanding interpretations of federal executive agencies. (Justice Neil Gorsuch did not participate, as he had not yet been seated on the court when the case was argued.)

Columbia Law School professor Ronald Mann, JD, writing for SCOTUSblog last year, reasoned that the decision carries big implications for the employees of religious healthcare organizations, the organizations themselves, and American society at large.

"On the one hand, exempting those plans from ERISA exposes the hospitals' employees to the catastrophe of making career-long contributions to a pension plan that is insolvent by the time they retire—a catastrophe from which ERISA has protected almost all of us for nearly half a century," Mann wrote. "On the other hand, because compliance is expensive, extending those rules to church-affiliated hospitals would raise the costs of health care at a time when the need for cost containment in the health-care industry could hardly be more pressing."

Justice Sonia Sotomayor concurred with the unanimous decision in the Advocate Health Care case, but she wrote separately to note her reservations. Church-affiliated healthcare organizations operate for-profit subsidiaries, earn billions in annual revenue, and compete directly with secular companies to which ERISA fully applies, Sotomayor noted.

"Any decision interpreting the provisions governing which employers are subject to ERISA is ultimately a decision about which employees receive this assurance," she wrote. "Today, by holding that ERISA's exemption for 'church plan[s]' ... covers plans neither established nor maintained by a church, the Court holds that scores of employees—who work for organizations that look and operate much like secular businesses—potentially might be denied ERISA's protections."

Yandle cited the Advocate Health Care case in her decision.

OSF HealthCare Prevails in Dispute Over Church Plan by HLMedit on Scribd

Clarification: An earlier version of this story referred to Justice Neil Gorsuch "sitting out" of the Advocate Health Care case. It is more precise to say he did not participate in any part of the proceeding because he had not yet joined the court when the case was argued. The story has been updated.

Steven Porter is editor at HealthLeaders.


KEY TAKEAWAYS

The ruling means ERISA's requirements do not apply to OSF Healthcare and its protections do not extend to OSF Healthcare employees.

The complaint came among a wave of similar lawsuits that culminated last year with a Supreme Court decision affirming the exemptions.

Some have questioned whether the exemption makes sense in the healthcare industry's modern competitive landscape.

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